In an unexpected move the Finance Minister has allows direct foreign participation in equity mutual funds The Union Budget 2011 has thrown up an unanticipated business opportunity for Indian mutual fund companies. They can now offer their products directly to any foreign entity, subject to the usual KYC norms. The foreign equity investment does not have to come through the FII route.
This potentially opens up a major new route for foreign investments to come into India. It also throws up a massive business opportunity for mutual funds and sets them up as competitors to existing FIIs for some segments of the market. While details will emerge as the regulations are clarified, it is possible that funds will launch segregated products for foreign customers due to differing regulatory requirements.
This new market will probably create a business advantage for Indian AMCs that are either owned by a foreign AMC or have a strong foreign entity as a partner. Standalone Indian AMCs like HDFC, Reliance or Tata could be at a disadvantage in this business unless they find new partners.